ETFTRADR is a part of the BigTrends.com Trading Network and is led by Andrew Hart. As the lead ETF Analyst Andrew noticed a missing link for traders–a dedicated site for active ETF Traders that provides real-time recommendations and quality education. He found that too many traders lacked... More

With Gold (NYSEARCA:GLD) reaching all-time highs again this week more investors are putting cash into anything precious metal related but I am here to caution you on doing so. There are far better opportunities than gold right now and chasing this trend is not the formula for generating short-term growth. We have traded GLD call options 8 times this year (7 profitable) in the ETF TRADR portfolio but now it’s time to step away. Of course, what type of ‘tradr’ would I be if I failed to offer a better alternative.

First off, it would be very difficult to find a long-term chart more strong and persistent than the Gold chart - it’s nothing short of amazing (and at the same time scary for the future of the dollar). That said, even as Gold has made new highs in recent days there is a better place to focus your trading capital. The semiconductor industry has lifted off in recent days and I expect it to continue. Here’s the performance chart between the headline-making Gold (GLD) rally and the Semiconductor ETF (NYSEARCA:SMH).

So what’s making the semis perform so well? It’s certainly not the lackluster outlook from PC manufacturers who continue to see challenges ahead. It was just three weeks ago when Intel (NASDAQ:INTC) slashed their outlook sending the stock down nearly 4%. Others like Cisco have also expressed concern with speak of “unusual uncertainty” in the global economy that could impact sales. If these headlines weren’t enough many analysts also believe Apple’s iPad is hurting sales of the Semiconductor Industry because the chip is Apple branded and made by Samsung who is not a major Semiconductor. The major players are not benefiting from this particular increase in chip demand. Bottom line, here’s what is making semiconductors (SMH) move.

In a classic contrarian move Semiconductors shifted in to high gear directly after the industry leader (INTC) lowered their outlook. SMH has one of the strongest ETFs trends in September and I believe it will continue. Let’s take a look at the SMH charts to see the how the ETF is trading. We’ll take a look at the following:

Current Trend Analysis (how strong is this trend and how much further can it go)

It’s hard to ignore the media coverage on global markets these days – I find myself avoiding CNBC during market hours more and more just to keep my focus where it needs to be. Across all major news sources we’ve heard a lot in the last year, the Dubai Debt Crisis, European Debt Debacle (P.I.I.G.S), fear of a U.S. double dip and more, but many investors missed the stealth success of an emerging BRIC (Brazil, Russia, India, China) country. Despite tepid performance across the BRIC countries in recent months India has persistently remained strong over the last 24 months and just this week hit 31 month highs.

Let’s delve into this surprising trend and determine if you should be chasing or fading this emerging powerhouse. I like to look at India based on three different time frames using three different technical based systems – this is the strategy that I use in the ETFTRADR portfolios each day. I call it a 3X3 strategy where I constantly monitor three time frames and three time-frame-unique systems, which provides diversity on indicators and periods. If you are interested in learning more about strategies we use I recommend joining Freemium TRADR, it's the easieast way to become a rockstar ETF TRADR. We’ll use the Wisdom Tree India ETF (NYSEARCA:EPI) since it has far better liquidity than other India ETFs (INP, IFN). In the last two years EPI has gained more than 20% outpacing the BRIC Index (NYSEARCA:BKF) and the S&P500 (NYSEARCA:SPY) significantly.

Let’s start with the bird’s eye view and weekly charts. The INVESTR system, which uses William’s % R, moving averages and Parabolics, has been extremely effective in 2010. The trend based system does show extreme strength, however, is it too strong to chase now? In my view, it’s not a good time to enter based on weekly charts – traders do not want to fight the current on EPI, but rather look for lower risk entries. Take a look at the chart below; I’ve highlighted several different entry points based on this type of bull retest. I look at 80 or 50 level retest to provide advantageous entry prices. The key is marking the retest bar’s low as your stop.

OK, so the weekly chart looks a bit overextended but strong so now let’s shift down to the daily charts. I use a stochastics based system for daily charts that provides more specific entry and exit points. Most recently we saw a stochastic based buy signal at the open on Monday. My first take-away is similar to the weekly chart—the daily looks very strong but potentially too strong to chase. Again, I would look for a retest on stochastics (a dip below the bullish threshold at 60) and place a stop at the bar’s low. I’ve also highlighted recent instances where this occurred in the chart. After missing a breakout like this it’s best to wait patiently for the pullback/retest.

Finally, let’s drill down to the hourly charts. This view really exposes the recent breakout strength in India. My hourly system looks for extreme strength by looking for trends that confirm outside both Acceleration Bands and Bollinger Bands, which makes the signals fast and very accurate. Dependent on your level of trading activity you could see a short signal on EPI hourly far before daily or weekly, however, it shows the true strength of the trend that EPI has not signaled a short since May on the hourly chart.

How Much More Can It Go?This is where the rubber meets the road—should you fade or trade EPI after it’s multi-month run? Similar to my views on agriculture commodities and gold trends there is little reason to fade India (EPI). The longer-term trend has established itself as one of the strongest in the global economy and historically leaders continue to lead while laggards continue to lag. That being said, there is a well defined argument for EPI being overbought on the short-term, which means patience is the best trade now. At this point all time frames are suggesting that a better long entry will develop. Similarly, all three time frames show little evidence that fading this trend will lead to profits.

August will be the third month of losses for the stock market out of the last four when the books close next Tuesday and we move into September. The major US indices have lost more than 5% across the board with the Dow down just 4.25% and the Russell 2K down 10%. The bearish price action looks like it will continue for the majority of September.

As of Wednesday’s close a new, confirmed bear signal has emerged on the markets and it’s historically dependable. In addition to the slew warning signs from Monday’s Equity Put/Call, the VIX crossing above its 200 day moving average and poor home sales we are seeing a short signal based on Acceleration Bands. Let me explain what this means…

Perhaps one of the most difficult momentum indicators to trigger a buy or sell for the SP500 is Acceleration Bands - the bands target the top/bottom 5% of bull and bear trends helping traders focus on only strongest moves. Check out our free Indicator How to Video on Acceleration Bands. The signals are easy - a traditional Acceleration Band Buy Signal occurs after 2 consecutive closes outside the upper band while a Sell Signal occurs after 2 consecutive closes below the lower bands...

Why is this Important NOW?

Wednesday's close marks the second consecutive close below the lower Acceleration Band meaning a Bearish Acceleration is expected in the market. The previous signals based on acceleration were profitable more often than not.

In the chart below you can see all SPY acceleration signals since 2008. I’ve noted the entry/exit dates and entry/exit prices of each signal—the performance is based on the total signal result and max gain/loss is the max gain in the signal. What’s interesting is that about 75% of signals were profitable at one point during the signal. This means we’ve got a very good opportunity to short the market now.

To give you a better idea of what these signals look like on a chart we plotted the system on the chart below. This shows you the systematic entry/exits. Overall, you can see that these areas are the strongest trends over the past two years—Acceleration Bands seek to highlight the top 5% of moves in a stock or ETF. Of course, the S&P500 (NYSEARCA:SPY) is an average so there are several sector ETFs experiencing the same signal. Other sector ETFs that are currently in bear accelerations are SPDR Energy (NYSEARCA:XLE) and SPDR Financials (NYSEARCA:XLF).

What’s Bottom line for TRADRs? Seasonality suggests that we could see strong selling pressure in September while the mid-term election cycle suggests a one year rally starting after the elections… It would seem likely that a sharp seasonal sell-off could take place in September following by a strong fourth quarter rally.

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